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August 01, 2014

Growing opposition to HMRC’s proposed new powers

Business bodies have urged the government to scrap its plans to give new powers to HMRC to recover outstanding debts.

As a public consultation on the Direct Recovery of Debt (DRD) initiative ended this week, accountancy body the Institute of Chartered Accounts in England and Wales (ICAEW) has described the plans as “unconstitutional”.

Under current rules, HMRC can only take money directly from bank accounts with legal authorisation from a magistrate or judge. Under the new plans, however, HMRC will be able to take money from a taxpayer’s bank account if the account holder owes more than £1,000 and has failed to respond to four formal warnings.

The proposals – announced in the Budget in March 2014 – will give HMRC inspectors the power to recover funds from the self-employed and small firms, where it is deemed they have sufficient money to pay the outstanding debt, with relevant safeguards in place.

The Forum of Private Business (FPB) says the proposals could be seen as unfairly targeting small firms. Although HMRC must leave a minimum of £5,000 in the account, it said the plans fail to take into account unexpected costs often facing small businesses such as stock or new investment, which can be considerable and above the allowed £5,000 cash safety net.

The FSB has predicted that 17,000 debtors a year will be targeted, with 85% of those being self-employed or self-assessed.

Alexander Jackman, FPB head of policy, said: “Our members are unequivocal in their condemnation of tax avoidance and the tax evasion practices that have received significant coverage in the media, in particular the practices of large corporates. However, many of our members already feel that they are unfairly targeted by HMRC and these proposals do little to dispel this commonly held belief. The smaller scope of their operations means many small business owners feel much more vulnerable to investigations than larger firms with more complex tax arrangements.”

Michael Izza, chief executive of ICAEW, said: “Recovery powers must be fair, proportionate and accompanied by robust safeguards – criteria that the DRD proposals do not meet. With no independent judicial oversight, how can a claim to, in essence, raid somebody’s account be justified?”

He added: “Experiences of our members show that HMRC frequently makes mistakes in collecting debts, often chasing debts that have been already paid or are not actually due. According to the Adjudicator’s report for 2013/2014, 90% of complaints against HMRC were upheld wholly or in part. With this in mind it is unrealistic to expect HMRC to implement DRD without making mistakes.”